I have several passions in life. Sports, politics, and specifically football, reign at the top of the list.

Light the Tower

Wednesday, January 25, 2012

The Buffett Rule: Politically Dishonest Gamesmanship

Don't you feel sorry for President Obama and the other millionaires who didn't earn income from long term capital gains last year? Unless you have been living under a rock for the past couple of days, Mitt Romney released his tax returns from 2010. Can you believe he had an effective tax rate of 13.9 percent on income of $21.7 million? He must be cheating the system. Just how can Romney pay that low of a tax rate while the rest of us hard working Americans pay much higher rates of 20, 25, or even 30 percent?

President Obama paid an effective rate of 23 percent in 2010 on income of about $5 million. There are famous quotes from Warren Buffett railing the system as to how he pays a lower tax rate than his secretary. So does every other tax filing American who derives income from long term capital gains. Yet, the picture is painted that the mean and nasty republicans are taking advantage of loopholes in the system. It is this type of political rhetoric that is dividing the nation. Preying on ignorance for votes. All Joe the Plumber hears is he pays a higher tax rate than the wealthiest of Americans. He never bothers to understand "why" and the media doesn't want to be honest with you about it as they wish for you to vote democrat.

Therefore, you must use your noggin in order to ascertain the misguided vitriol which clouds the airwaves all year long, especially in election season. Warren Buffett has famously opined that he pays the lowest income tax rate in his office. Less than his Executive leadership team. Less than his secretary, Debbie Bosanek. President Obama was disingenuous last night when he stated that it is wrong for Mr. Buffett's secretary to pay a higher tax rate than her boss. Ms. Bosanek's salary is taxed at the appropriate level. If Mr. Buffett paid himself a typical salary, he would be taxed at that level as well. However, he chooses to derive income from long term capital gains, thereby reducing his income tax obligation. President Obama derived the majority of his income in 2010 from book sales. Hence, his effective tax rate will be higher than Romney's and Buffett's as the money earned was not from long term capital gains. In this hypothetical example, if you and I were to invest $10,000 in stock XYZ more than 12 months ago and reaped a windfall of a return on said stock and the account was now valued at $500,000, we would pay 15 percent tax, or $73,500 on the gain of $490,000 if we chose to sell the position. This rule applies to all of us. Conversely, if one's salary from their company were $490,000, the income tax responsibilities would look like this:

Salary: $490,000

Exemptions: 2 (married filing jointly + 2 children dependents)

Taxable Income: $471,000

Total Tax Due: $134,722

Effective Tax Rate: 27.49%

The above scenario is probably applicable to President Obama's family as he would have claimed four total exemptions. I wonder if President Obama or Mr. Buffett volunteered to send more money to the IRS than they were legally obligated to? Oh, who am I kidding. However, one can look at charitable donations as a means to gauge the philanthropic temperature. Romney donated nearly $3 million to charitable organizations, mainly to the Church of Jesus Christ of Latter-Day Saints. This equates to nearly 15 percent of his Adjusted Gross Income. Those damn evil republicans. They are money hoarders to boot! Yet, when compared to then Presidential hopeful Obama's charitable donations of 6.1 percent in 2006, whose returns were released when he was on the campaign trail in 2008, Romney appears quite generous. However, these stories are buried because it goes against the agenda of the media. For if the media wished to be forthright and paint the entire picture, they would do just that. Remember, Obama is the good guy, Romney is the evil guy.

Instead, we are faced with gargantuan amounts of "facts" that are dispersed with an end goal in mind: confuse the public to the point of steering the uneducated masses into trusting the media as the sole truth teller and information source it so desperately wishes it was. Thankfully, more are catching on and learning that a typical newscast or story written in a major media publication is merely an extrapolation of an attention grabbing headline. You have to dig online for truth. The truth is buried in the fine print, much like a contract to purchase a vehicle, house, or any other complex issue. But, these issues are not complex. The main issue here is transparency accompanied with the truth. This truth would reveal that Romney paid 13.9 percent in income tax by legally following the tax laws as they are currently written.

Romney benefitted from wise investment decisions and holding those positions for a period of longer than one year. How many of us are tempted to take our gains on a short term basis? If we do, they are taxed as income. Each of these options are available to both you and I. Moreover, this bemoaning stems from the fiscal irresponsibility which is running rampant throughout the government. The media provides the platform for the government to scream that they are not taking in enough income in order to pay their bills. Therefore, the solution must be to increase the amount of money they take in rather than reduce the amount of money they expend. The fact is the deficit for this nation has increase from $10.8 trillion when Obama took office to more than $15 trillion today. That is simply astonishing. Mr. President, the problem is right in front of you. Stop spending what you do not have. Veto any budget that Congress sends to you that adds to the deficit. This is not complicated. Stop trying to make Americans believe that it is.

Not as good as the time you schooled me using citydata.com. How many blogs feature Texas & Hawaii this prominently? ; )

If you decide to drop in, we are blogging under new aliases. I'm sure you'll figure it out, but it should be enough to throw off the perma trolls. Otherwise, I'll stop in here and say hi from time to time.